Crosby Estate at Rancho Santa Fe Master Ass'n v. Ironshore Specialty Ins. Co.

• Decision Date: 03 November 2020
• Docket Number: Case No.: 19-cv-2369-WQH-NLS
• Parties: The CROSBY ESTATE AT RANCHO SANTA FE MASTER ASSOCIATION, Plaintiff, v. IRONSHORE SPECIALTY INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Southern District of California

498 F.Supp.3d 1242

The CROSBY ESTATE AT RANCHO SANTA FE MASTER ASSOCIATION, Plaintiff,

v.IRONSHORE SPECIALTY INSURANCE COMPANY, Defendant.

Case No.: 19-cv-2369-WQH-NLS

United States District Court, S.D. California.

Signed November 3, 2020

Cheryl Dunn Soto, Franklin Soto LLP, San Diego, CA, Joshua D. Franklin, Franklin Soto LLP, Del Mar, CA, for Plaintiff.

David M. Morrow, Paul S. White, Wilson Elser Moskowitz Edelman & Dicker LLP, Los Angeles, CA, for Defendant.

ORDER

HAYES, Judge:

The matter before the Court is the Motion for Partial Summary Judgment filed by Plaintiff The Crosby Estate at Rancho Santa Fe Master Association. (ECF No. 15).

I. BACKGROUND

On December 10, 2019, Plaintiff The Crosby Estate at Rancho Santa Fe Master Association ("The Crosby") filed a Complaint against Defendant Ironshore Specialty Insurance Company ("Ironshore"). (ECF No. 1). In the Complaint, The Crosby alleges that it is insured under a policy issued by Ironshore. The Crosby alleges that it was sued in 2018 by a neighboring community homeowners’ association and "tendered the defense of that lawsuit to Ironshore ...." (Id. ¶ 2). The Crosby alleges that Ironshore "dragged its feet," stated that Ironshore did not have a duty to defend "despite contrary language in the applicable policy," and issued denials of coverage that it would later reverse. (Id. ). The Crosby alleges that "Ironshore failed to pay a dime in defense costs until July 30, 2019, more than a year after The Crosby's tender." (Id. ). The Crosby alleges that Ironshore agreed to reimburse The Crosby's defense costs at reduced rates, "not the actual amounts incurred by The Crosby when forced to retain defense counsel at its own expense." (Id. ).

The Crosby brings claims against Ironshore for 1) breach of contract (duty to defend); 2) breach of contract (duty to indemnify); 3) breach of contract (unauthorized retention); 4) breach of the implied covenant of good faith and fair dealing; and 5) declaratory relief. The Crosby seeks damages, including punitive damages; a declaration that the insurance policy's "$50,000 retention does not apply where the Insured has tendered the defense of a claim and Ironshore has assumed the duty defend;" and attorneys’ fees, costs, and prejudgment interest. (Id. ¶ 58).

On January 17, 2020, Ironshore filed an Answer to the Complaint. (ECF No. 7).

On March 30, 2020, The Crosby filed a Motion for Partial Summary Judgment on the first claim for breach of contract (duty to defend), the third claim for breach of contract (unauthorized retention), and the fifth claim for declaratory relief. (ECF No. 15). The Crosby contends that it tendered the defense of the 2018 lawsuit to Ironshore, triggering Ironshore's duty to defend. The Crosby contends that the 2018 lawsuit is potentially covered by the insurance policy, and the policy exclusions do not negate all possibility of coverage. The Crosby contends that Ironshore breached the terms of the insurance policy by failing to defend The Crosby and by requiring The Crosby to satisfy a retention as a condition of the duty to defend.

On April 20, 2020, Ironshore filed an Opposition to the Motion for Partial Summary Judgment. (ECF Nos. 16-21). Ironshore contends that has no duty to defend under the terms of the insurance policy. Ironshore contends that 2018 lawsuit is excluded from coverage. Ironshore contends that it did not breach the insurance contract because it agreed to advance The Crosby's defense costs, and The Crosby was required to satisfy a retention. On April 27, 2020, The Crosby filed a Reply.¹ (ECF Nos. 27-30).

On August 27, 2020, the Court heard oral argument on the Motion for Partial Summary Judgment. (ECF No. 36).

II. FACTS

a. The Ironshore Insurance Policy

On June 30, 2017, Ironshore issued insurance policy number 0020840 to The Crosby ("Policy"). The Policy is an entity, directors’, and officers’ liability insurance policy "covering Policy Period July 2, 2017 [through] July 2, 2018 and providing a $1,000,000.00 limit of liability." (Pl.’s Statement of Facts, ECF No. 15-2 at 2 ¶ 1). The Policy provides coverage for "Claims:" "civil ... proceeding[s]" alleging any "act, omission, error, ... neglect or breach of duty" by The Crosby—the "Not-For-Profit-Entity" and an "Insured" under the Policy. (Policy, Ex. 1 to Salpietra Decl., ECF No. 15-4 at 12-13, 16 (emphasis omitted)). The Policy requires that the Insured give the "Insurer," Ironshore, notice of the Claim in writing. (Id. at 14 (emphasis omitted)).

The Policy provides:

The Insured, and not the Insurer, have the duty to defend all Claims, provided that the Insured shall only retain counsel as is mutually agreed upon with the Insurer. The Not-For-Profit Entity may at its option tender to the Insurer the defense of a Claim. Such a tender of the defense of a Claim shall not be made more than 90 days following notice of the Claim pursuant to Section VII. Upon such a tender of the defense of a Claim, the Insurer shall assume the duty to defend.

(Id. at 20 (emphasis omitted)).

When a Claim is commenced against an Insured during the Policy Period, the Insurer is obligated to pay "Loss," including damages, judgments, settlements, interest, legal fees, costs, and expenses. (Id. at 14 (emphasis omitted)). The Insurer is not liable to pay Loss for Claims that are excluded from coverage. The Policy excludes Claims based on contractual liability, Claims involving pollution, Claims for property damage, and Claims that are related to prior Claims against an Insured.

The Policy provides that the Insured is responsible for a $50,000 "Retention" that applies to "all covered Loss ...." (Id. at 19 (emphasis omitted)). The Policy provides that "[t]he Insurer shall be liable to pay Loss in excess of the applicable Retention amount ... up to the Limit of Liability ...." (Id. (emphasis omitted)).

b. The 2018 Avaron Lawsuit

On May 25, 2018, the Avaron Community Association ("Avaron"), filed a complaint against The Crosby and AMS Paving, Inc., in the Superior Court for the State of California, County of San Diego, assigned case number 37-2018-00026012-CU-BC-NC ("Avaron Lawsuit"). Avaron alleged that in 2007, Avaron and The Crosby entered into a "Shared Use Maintenance Agreement" giving The Crosby an easement for ingress and egress over Avaron's property. (Avaron Lawsuit Compl., Ex. 2 to Salpietra Decl., ECF No. 15-4 at 59). Avaron alleged that The Crosby 1) breached the Shared Use Maintenance Agreement by removing speedbumps on Avaron's property; 2) interfered with Avaron residents’ quiet use and enjoyment by instigating "Operation Honk," a coordinated effort in which residents of The Crosby repeatedly honked their car horns when they passed over speedbumps on Avaron's property; and 3) intentionally destroyed and removed speedbumps on Avaron's property to allow residents of The Crosby to "drive as fast as they can through the easement without regard for the safety or well being of the residents and guests in Avaron." (Id. at 59-61). Avaron sought compensatory damages, punitive damages, termination of The Crosby's rights under the SUMA, and injunctive relief.

On June 4, 2018, The Crosby's counsel, Rick Salpietra, sent an email to Ironshore's third-party claim administrator that stated:

The attached [Avaron Lawsuit] was filed against the Crosby[ ]on May 25, 2018, but has not yet been served ....

By operation of law, a responsive pleading should be filed no later than 30 days after service. Pursuant to the terms of its policy, The Crosby hereby tenders its defense to its insurance carriers, and request[s] that counsel be appointed within a reasonable time so that the proper responsive pleading may be filed within the time allowed by the Code of Civil Procedure. It is our understanding that a TRO in this matter is scheduled for Thursday, June 7-2018. The Board will have the firm of Procopio, Cory, Hargreaves & Savitch LLP represent it at the TRO hearing if a defense attorney is not appointed in time.

Inasmuch as the Complaint alleges covered claims, the Crosby is owed a defense to the allegations of the entire Complaint, as well as any indemnity that may be owed on a covered claim. Please confirm acceptance of this email in writing and advise us of the name of the appointed defense counsel as soon as possible. We are available to assist the retained counsel in this matter.

By copy of this email to Dana Diset and Leslie O'Connor, the Crosby requests all other Crosby insurers be put on notice of this claim.

(York Pro Email, Ex. 3 to Salpietra Decl., ECF No. 15-4 at 63-64). On June 5, 2018, Dana Diset from the "LaBarre/Oksnee Insurance Claims Department" responded, "Claims have been filed on the association's GL and D&O policies and an adjuster from each will be assigned shortly. The association should provide their own defense until the carriers have time to review and determine coverage/assign defense." (Diset Email, id. at 63).

On July 9, 2018, Ironshore's Vice President of Claims sent an email to The Crosby's counsel, Rick Salpietra, stating that a Senior Claims Specialist had been assigned to the Avaron Lawsuit and reserving Ironshore's rights under the Policy. Rick Salpietra sent an email to the Senior Claims Specialist that stated:

Crosby just received [the claims specialist assignment] letter, and we look forward to working with you on this matter. Since Avaron filed for a TRO last month, the Crosby retained its own counsel to defend the TRO while a coverage investigation was being conducted by the carrier. Crosby retained Rebecca Reed of Procopio firm [ ]. If possible, the Crosby would like to keep her as defense counsel if they are acceptable to Ironshore.

If not, please let me know [who] the appointed defense counsel is and we can provide relevant information to them.

(Salpietra Email, Ex. 5 to Salpietra Decl., ECF No. 15-4 at 70-71). The Senior Claims Specialist responded:

Coverage is still being evaluated at this point as the Complaint contains claims for breach of contract and

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